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Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund

In: Corporate Governance

  • Marco Becht
  • Julian Franks
  • Colin Mayer
  • Stefano Rossi

This article reports a unique analysis of private engagements by an activist fund.� It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme (BTPS), on engagements with management in companies targeted by its U.K. Focus Fund (HUKFF).� In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information.� The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking.� We categorize the engagements and measure their impact on the returns of target companies and the fund.� We find that Hermes frequently seeks and achieves significant changes in the company's strategy including refocusing on the core business and returning cash to shareholders, and changes in the executive management including the replacement of the CEO or chairmen.

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This chapter was published in:
  • Michael Weisbach, 2010. "Corporate Governance," NBER Books, National Bureau of Economic Research, Inc, number weis10-1, August.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12191.
    Handle: RePEc:nbr:nberch:12191
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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